In recent weeks my Reason Foundation colleagues and I have been strongly critical of the House proposal to supplement the Highway Trust Fund (HTF) with revenues to be derived from expanded oil and gas production. Indeed, we participated in a joint news conference with the Competitive Enterprise Institute, Natural Resources Defense Council, and Taxpayers for Common Sense in defending the principle that the federal program should continue to be based on the users-pay/users-benefit principle. Closing a large HTF funding gap with non user-tax revenues, even if there were enough money to do so (which there isn’t) would destroy the HTF’s protected status as exempt from across-the-board federal spending cutbacks. That’s because the Budget Control Act grants that protected status only to trust funds that obtain at least 90% of their funds from user taxes.

But last week, the House Ways & Means Committee came up with a way to save the Trust Fund. It would shift funding for urban transit out of the HTF (where it has been since 1983) and support it out of general federal revenues. That would close $40 billion of a projected $50 billion gap in the four-year House bill, which would retain the HTF’s protected status. (To be sure, the $40 billion general-fund amount for transit would still have to be “paid for” by other spending and revenue changes, but because the new Alternative Transportation Account would not be a user-tax-supported trust fund, the arena of possible “pay-fors” is wide open.)

Needless to say, transit-friendly interest groups are going berserk over this change, putting out news releases using terms such as “decimate,” “slash,” and “just short of defunding” transit. When you look past the rhetoric, they seem to be advancing three arguments.

First, even if the first four years’ $40 billion (preserving recent funding levels) is ensured, all bets are off in subsequent periods. They fear that in the coming era of reducing the size and scope of the federal budget, the merits of continued federal support for urban transit will fail to carry the day. Since I don’t see supporting urban transit as inherently federal, I wish they were correct, but given the lavish federal support transit has received over the last several decades, I don’t see that happening—so those fears are greatly exaggerated.

Second, these “progressives” rely on the argument from . . . tradition. There has been a Mass Transit Account within the HTF ever since 1983, with about 20% of all highway user tax revenues being diverted to transit. That’s true, but times change, and we have entered an era in which all kinds of traditional federal programs will have to be rethought. The actual history of the transit account’s creation (see James A. Dunn’s book, Driving Forces) shows that it came about when Reagan DOT Secretary Drew Lewis decided to build a coalition in favor of a gas-tax increase that Reagan himself opposed. Urban Democrats held out for a transit carve-out in exchange for supporting the gas-tax increase, and Lewis gave it to them—though Reagan still threatened to veto the bill. But after a poor GOP showing in the November 1982 elections, Reagan gave in, justifying the increase as helping to repair roads and bridges (and ignoring the transit provision).

Third, and most egregiously, transit advocates are simultaneously defending federal transit funding as helping to reduce the congestion faced by gas-tax-paying motorists while simultaneously cheering on the Administration’s proposed gutting of Federal Transportation Administration evaluation rules based on congestion reduction. A January 25th Federal Register notice would replace the “antiquated” formula under which new rail and bus projects must demonstrate travel-time savings with a “simplified” measure: annualized capital and operating cost per trip, regardless of whether it saves any time or reduces congestion. But it’s worse than that. If you read the fine print, all kinds of costs would be excluded from this calculation—extra pedestrian access, aesthetically oriented design features, LEED certification for transit facilities, etc. And benefits that “capture the vision of a community” including environmental benefits and impact on local economic development will also increase a project’s score. Sponsors would no longer have to use actual local travel forecasts in projecting ridership; they could use an FTA-developed “simplified national model.” Nor would they have to develop a baseline alternative.

Pure and simple, this is a way to allow “nice to have” projects like streetcars and other projects with minimal impact on congestion to gain federal funds. The more you read this stuff, the less it sounds like transportation and the more it sounds like the community development projects that the Department of Housing and Urban Development (HUD) funds. By embracing these kinds of criteria, the transit community has essentially conceded the case for no longer funding transit out of highway user taxes.

Interestingly, what we now call the FTA began life as the Urban Mass Transit Administration, located within HUD. Perhaps in addition to shifting federal transit to the general fund, Congress should move FTA back to HUD, where it would be a better fit.

Cooking the Books on California HSR Alternatives

One of the key arguments made in favor of the California High-Speed Rail project is that it would cost less to build it than to expand airport and highway capacity to meet future needs for north-south travel in the state. The California HSR Authority has put forth various figures over the years, but there has been a consistent pattern: every time the cost of the HSR project has increased, somehow the estimated cost of the airport and highway alternatives has grown to keep pace. Several months ago, after releasing the new Phase 1 cost estimate of $98.5 billion, the CHSRA announced that the airport and highway alternative would cost $171 billion, a figure that left transportation analysts gasping. “There is some dishonesty in the methodology. I don’t trust an estimate like this,” Samer Madanat, director of the UC Berkeley Institute of Transportation Studies, told Los Angeles Times reporters Ralph Vartabedian and Dan Weikel, whose excellent article on the subject appeared on January 17th. The nonpartisan Legislative Analyst’s Office also questioned the $171 billion estimate, in its report last November.

The calculation methodology used by the CHSRA’s consultants was exposed in the excellent report “Twelve Misleading Statements on Finance and Economic Issues in the CHSRA’s Draft 2012 Business Plan,” released January 12, 2012. This report was done by the same Silicon Valley team, headed by former RAND expert Alain Enthoven, that produced the earlier report, “The Financial Risks of California’s Proposed High-Speed Rail Project” in 2010. The new report is online at www.cc-hsr.org/assets/pdf/12misleadingstatements.pdf.

The first step in cooking the books was to define the needed capacity far too high. Instead of using a realistic projection of HSR ridership in, say 2040, the consultants began with a theoretical maximum capacity of the HSR system as of that year. Assuming the system runs a train each direction every five minutes, 19 hours a day, 365 days a year, with 70% of its 1,000 seats filled, it could carry 116 million passengers per year. The actual (highly inflated) ridership estimate for 2040 is between 30 and 44 million. But the calculation of needed highway and airport capacity was based on 116 million.

Next, for the highway alternative, they used an arbitrary distance of 775 miles, rather than the 520 mile length of the dog-leg route the HSR will actually follow (which, in turn, is longer than the actual highway routes people drive between Los Angeles and San Francisco). They then divided the 775 miles into 26 sections, 6 rural and 20 urban, to estimate costs. For the highway portion of the capacity for 116 million trips per year, they assumed that three new lanes, on average, would be needed over the 775 miles. But instead of using rural lane-mile costs for the rural portions and urban lane-mile costs for the urban portions, they used a simple un-weighted average cost per lane-mile (for which a freshman civil engineering student would get an F).

The Enthoven team corrected for all these errors, and came up with—based on serving 40 million HSR trips per year instead of 116 million, and using 520 miles instead of 775—a highway cost, in year-of-expenditure dollars, of just $20 billion. Added to their estimated airport cost of $15.4 billion, the total cost of the alternatives is $35.4 billion. That is about one-third of the current official HSR Phase 1 cost estimate of $98.5 billion and is just 21% of the CHSRA’s absurd $171 billion number.

There ought to be a way for taxpayers to file a civil engineering malpractice suit over this.

More Bus Rapid Transit Developments

My article on BRT without exclusive lanes, in the November issue, brought several interesting responses. But let me first note two additional developments in this area. First, the County Council of Montgomery County, MD voted unanimously last month to proceed with a BRT system for congested I-270, reversing a 2009 decision favoring light rail for that corridor. In supporting BRT instead, members stressed not only its significantly lower cost but also greater flexibility (since the bus can make pick-up and drop-off stops on both ends of the corridor, rather than requiring passengers to transfer to another mode, as would be the case with light rail). It can also be integrated with a planned 150-mile BRT network, still under study. But I will repeat what I wrote in the November article: a freeway BRT route like that on I-270 would be far more cost-effective if it operated on HOT lanes, selling excess capacity not needed for the BRT vehicles to motorists willing to pay for uncongested trips.

Another BRT decision took place in December in fiscally troubled Detroit. Officials there pulled the plug on a nine-mile $600 million light rail line from downtown to inner suburbs via Woodward Avenue. Instead, with the support of the Federal Transit Administration, the city will proceed with a $500 million plan for a 110-mile rapid bus system (which is generically termed BRT-Lite, and is exemplified by the highly successful Metro Rapid system in Los Angeles). This type of BRT operates on major arterials, generally with traffic signal priority at intersections. Detroit clearly needs better transit, given that (1) 62% of residents don’t own cars, and (2) nearly all the region’s jobs are in the suburbs.

One reader wrote to comment on my critique of the planned 9.4-mile exclusive busway near Hartford, CT, whose cost has ballooned to $567 million. He tells me the original cost was estimated at just $80 million, but that successive studies and federal requirements led to the cost escalation (which is now in the range of recent light rail projects). Given that they are going forward with it as a busway, however, it would still make sense to open it up to toll-paying customers, with variable pricing to prevent congestion from developing.

The most interesting response came from Leon Goodman, retired Manager of Transportation Planning for the Port Authority of New York & New Jersey. He sent me the summary of a planning effort from the mid-1970s for a JFK Transitway. It would have made use of bus lanes on the Long Island Expressway (LIE) from the Midtown Tunnel to the point where the LIE crosses the Long Island Railroad. From there, the remaining 8.5 miles would have followed the abandoned Rockaway Line and a stretch of the median of the Van Wyck Expressway to the Central Terminal Area of Kennedy Airport. Estimated travel time from Grand Central Station to the International Arrivals Building at JFK was 36 minutes for this one-seat ride. The transitway would have been open to all other buses, vans, and taxicab (and had it been proposed within the past decade, would very likely have also included toll-paying cars, if there were excess capacity).

The original cost estimate, in 1976, was $62.5 million, not counting right of way costs. Given inflation since then, that’s about $250 million in today’s dollars. That still compares very favorably to the $900 million JFK Airtrain that was built many years later, and only goes from JFK to the LIRR station, requiring a transfer to either the LIRR or the subway—and considerably longer travel times to and from Manhattan.

I asked Goodman why the project was torpedoed, and he explained it as a combination of NIMBYism along the rail corridor and anti-BRT/pro-rail prejudice among policymakers. The net effect was to eventually produce a far more costly and far less effective rail project that is used mostly by airport employees and by very few of those who might have used a one-seat ride from Manhattan to JFK.Much Ado About Equity in Road Pricing

There was a flurry of discussion last month on the Congestion Pricing list-serve over a new report from GAO: “Traffic Congestion: Road Pricing Can Help Reduce Congestion, but Equity Concerns May Grow.” (GAO-12-119) While there was general agreement that the report provides a good overview of current and forthcoming HOT/Express lanes projects and peak/off-peak toll rates on existing toll roads and bridges, nearly all the comments were over what many saw as an exaggerated concern over equity issues related to road pricing.

My initial reaction, before reading the final published version, was that this emphasis must have been due to the congressional requestors of the study. GAO, as you know, is essentially a think tank for Congress, with nearly all of its studies stemming from requests from members. So I quickly turned to the introductory letter, addressed to requestors Rep. Tom Latham (R, IA) and Rep. John Olver (D, MA). But in restating their reasons for GAO doing the study, equity was nowhere in sight: “At your request, we examined (1) the federal role in supporting congestion pricing, (2) the results of congestion pricing in the United States, and (3) emerging issues in congestion pricing projects.” For some reason, the GAO analysts evidently decided that equity is an “emerging issue” and devoted about half the report to this topic.

Without giving any citations, the GAO researchers state that “Congestion pricing has raised equity concerns among the public and elected officials,” and they go on to cite four different concepts of equity. They further state that most public officials’ concerns are about income equity and geographical equity, and focus mostly on those aspects in the rest of the report.

There are several problems with this emphasis. First of all, in my experience in researching and writing about congestion pricing for more than two decades, income equity (a.k.a. the “Lexus Lanes” issue) is of far greater concern to public officials than it is to the citizens who use congested highways. If members of the public are worried about such a thing prior to the start-up of an express lane, that concern seldom survives experience with using it. Again and again, public opinion surveys show rising support over time for the priced lanes—familiarity breeds contentment. Moreover, when empirical data are assembled on the distribution of vehicles using such lanes (as Washington State DOT has collected on its SR 167 HOT lanes), they show a broad range of vehicles using the lanes on a typical day, not mostly luxury cars.

What especially dismays me is the hubris shown by many (well-off) planners and elected officials who find it hard to grasp the reality that there are many situations where a relatively lower-income person welcomes the opportunity to pay a toll to bypass congestion, because for that particular trip, the value of the time savings exceeds the price of using the tolled lane. That’s true not only for the “get-to-day-care-before-late-fees-kick-in” trip but also for such trips as getting to work on time when being late (again) puts one’s job at risk or getting to the airport for a long-planned family vacation trip.

To its credit, the GAO report mentions a very important report on transportation finance equity, commissioned by the Executive Committee of the Transportation Research Board. Special Report 303, “Equity of Evolving Transportation Finance Mechanisms,” is the report you ought to read if you want a thorough treatment of these issues. It was developed by a special committee that included some of this country’s most knowledgeable transportation economists and finance experts, chaired by Joseph Schofer of Northwestern University. Let me quote you a few passages from TRB’s summary of this document.

“The most important lesson from the committee’s work is that broad generalizations about the fairness of high-occupancy toll (HOT) lanes, cordon tolls, and other evolving mechanisms oversimplify the reality and are misleading. The fairness of a given type of finance mechanism depends on how it is structured, what transportation alternatives are offered to users, and which aspects of equity are deemed most important.”

“Comparing finance proposals against current funding mechanisms is also important. If the current mechanism is itself inequitable, one of the key questions for policy makers becomes ‘how does the alternative funding method change the equity picture?’” Note: to its credit, the GAO researchers mention this point when they cite the TRB report, writing that “It may be the case that tolling and pricing provide a more equitable means of funding roadways than these other alternatives,” but they more or less let this issue drop thereafter.

Overall then, I think the GAO report, while providing a useful compendium of current and planned road pricing projects, creates a misleading impression that equity concerns are far more of a problem than is being experienced out here in the real world where actual projects are being implemented successfully.

MTC’s Response on Benefit-Cost Analysis

I was not surprised to hear from my friend and colleague Steve Heminger, executive director of the Metropolitan Planning Commission (MTC), the MPO for the San Francisco Bay Area, in response to my critique last month of the agency’s recent benefit-cost analysis of a range of potential transportation projects.

His first response deals with the value of time figures used in their calculations. I especially took issue with using $26/hour for trucks, and compared that with the $88/hour used in the Texas Transportation Institute’s widely-cited Urban Mobility Reports. Heminger explained that $26 is the sum of the average truck driver wage in the Bay Area ($23.83) plus “the average hourly carrying value of cargo” ($2.41), citing this procedure as consistent with FHWA’s HERS model. On this point, I beg to differ. Numerous research papers on the cost of travel delays in goods movement reach much higher values. “Assessing the Value of Delay to Truckers and Carriers” by Qing Miao, Bruce Wang, and Teresa Adams (July 2011), jointly sponsored by UTCM at Texas A&M and the National Center for Freight and Infrastructure Research and Education at the University of Wisconsin, used a carrier fleet simulation model to estimate urban-area time cost in goods movement. They found values of delay ranging from $94/hour to $121/hour. That was markedly higher than what they found via a stated-preference survey of truck drivers, where the VOD ranged from $25 to $65 per hour. What is dispositive here is not what drivers think, but the economic value to carriers of time wasted in congested traffic. On this point, at least, the MTC’s benefit-cost calculations seriously short-change goods movement.

I’m also not satisfied with Heminger’s response on the value of time delays in personal travel. The MTC analysis uses one-half of the mean wage rate in the Bay Area, resulting in the reported $16/hour used for both drivers and transit riders. First, this implies that the average commuting driver makes the same salary as the average transit rider, which I doubt is the case (except possibly for BART). Second, if there is one thing we’ve learned from a number of recent studies on priced managed lanes, it’s the huge heterogeneity in values of time and values of reliability. Especially when estimating the benefit-cost ratio of HOT lanes, as the MTC did, to use one-half the mean wage rate of the entire region is very far from the mark. A metro area that is one of the first in the nation to include a HOT lanes network in their long-range plan should be using a far more refined approach to valuing the time savings of those willing to pay for faster and more reliable trips.

In my article, I also drew comparisons with the MTC’s Blueprint analysis of numerous proposed transit projects in 2001. Heminger reminded me that the 2001 analysis focused on the cost per new transit rider and thus differed considerably from the current, much broader attempt to assess the benefits and costs of both highway and transit projects. Point conceded. He also invited me—and by extension, my readers—to explore in more detail how MTC did the calculations in the current exercise. It is online at: www.onebayarea.org/plan_bay_area/transportation.htm. And details on the benefit-cost methodology are in the attachments to the October 28, 2011 memorandum to the MTC Planning Committee.

Upcoming Conferences

Note: I don’t have space to list all the transportation conferences going on; below are those that I am (or a Reason colleague is) participating in.

Florida Toll Agencies Should Not Be ConsolidatedThat was the principal recommendation of a Reason Foundation study released the beginning of this month, researched and written by Daryl Fleming and me. The study draws a distinction between inter-city turnpikes and urban toll expressways, concluding that the latter need a different kind of investment, customer service, pricing, etc.—and hence that it would be a mistake to consolidate Florida’s three urban toll agencies into the Florida Turnpike Enterprise. Some supporters of local toll agencies fear that under consolidation, revenues from urban toll-payers might be shifted to other parts of the state, a fear fanned by the fact that a prominent legislator who advocates consolidation comes from a district with a bankrupt toll bridge. “Should Florida Toll Agencies Be Consolidated?” is online at http://reason.org/news/show/florida-toll-agencies-consolidated.

Report Tracks Growth in Intercity Bus ServiceA report released Dec. 21, 2011 by the Chaddick Institute at DePaul University provides facts and figures on the fastest-growing mode of inter-city travel: scheduled motor coach service. “The Intercity Bus Rolls to Record Expansion: 2011 Update on Scheduled Motor Coach Service in the United States,” was written by Joseph Schwieterman and five colleagues. It’s available at: http://sites.google.com/site/intercitybusstudy/home/new-annual-report-on-intercity-bus-sector.

Infrastructure Funds Rack Up Impressive Gains in 2011Infrastructure Investor reported last month that global infrastructure investment funds raised $20.8 billion in new capital in 2011. That is the largest annual total since 2008, and brings the total raised over the past decade to more than $200 billion. These funds invest equity in projects, so at a ratio of 25% equity:75% debt, these funds could support projects worth about $800 billion.

Provocative Book on New EnvironmentalismMy Reason Foundation colleague, Reason magazine science correspondent Ron Bailey, wrote an informative review of a challenging new book. It’s Love Your Monsters: Postenvironmentalism and the Anthropocene, edited by Michael Shellenberger and Ted Nordhaus. Its thesis is that technological progress and economic growth are the road to environmental salvation, rather than being the highway to ruin. I have not yet read the book, but I’ve always found Ron’s judgment to be reliable. His review is posted at: http://reason.com/archives/2012/01/04/postenvironmentalism-and-technological-a.

Sierra Club Questions California HSR PlanIn a January 13, 2012 letter to the California High-Speed Rail Authority, the Sierra Club California echoes criticisms leveled by other organizations about many key aspects of the Authority’s Draft 2012 Business Plan. Specific concerns include that the plan “exaggerates ridership, revenue, and investment,” and that it “depends on non-existent funding for linkages.” It closes by raising the concern that “The current business plan presents the risk that a single transportation project could absorb all public funding at the expense of a robust [transportation] system.” And for “this and all the reasons expressed above,” the organization “urge[s] the HSRA to reconsider its business plan.” (http://sierraclubcalifornia.org/2012/01/19/sierra-club-ca-letter-to-the-high-speed-rail-authority/)

Primer on PPPs and U.S. InfrastructureMy friend and colleague Bill Reinhardt, editor of Public Works Financing (for which I write a monthly column) last year wrote a white paper, “The Role of Private Investment in Meeting U.S. Infrastructure Needs.” After some prodding on my part, it is now available online so that you and other interested parties can read it. Go to: www.artba.org/mediafiles/transportationp3whitepaper.pdf.

Feedback on CBO Report on PPPsGary Kuhn emailed me with some further thoughts on the report on PPPs by the Congressional Budget Office, which I reviewed in last month’s issue. He pointed out two issues that the report does not address. First, most benefit-cost analyses of PPPs do not explicitly take into account the benefit of the concession company being responsible for the cost of operations and maintenance (in part because, says Gary, DOTs do not accurately keep track of facility-specific O&M costs). Second, typical RFPs assume usual DOT input-type specifications, rather than stating performance requirements, thereby foregoing a lot of potential creativity on the part of would-be concessionaires.

Quotable Quotes

“[I]f it is so clearly in the interests of one mode of transportation [highways] to subsidize another [transit] in order to reduce the first mode’s own congestion, let’s carry out a little thought experiment. One of the principal arguments espoused by advocates of high-speed intercity passenger rail is the role that high-speed rail can play in reducing future congestion in the U.S. airspace system. . . . In that case, hypothetically, why not increase taxes on aviation to pay for more high-speed rail? Doubling the current excise taxes on airline tickets and the per capita flight charges would bring in about $8 billion per year . . . . At first glance, the idea of increasing taxes on airlines and their passengers to pay for high-speed railroads that would them compete with those same airlines seems absurd, and is of course completely politically unrealistic. But conceptually, how is it so different than the existing practice of taxing highway users in order to pay for a competing mode of transportation?”--Jeff Davis, editorial, Transportation Weekly, October 14, 2009, p. 7

“Our infrastructure needs money, and Congress can’t seem to fund a surface transportation bill. . . . The result is increasing congestion and longer service times. There are so many areas of congestion that could be fixed easily if there were more money in the system. Quite honestly, shippers would be happy to help fund big freight projects of national and regional significance if we knew with absolute certainty that the money would go back into infrastructure. Unfortunately, all too often, funding comes from a certain source, and then it gets earmarked for another destination.”--Casey Chroust, Retail Industry Leaders Association, in “4th Annual Shippers Roundtable,” Journal of Commerce, January 9, 2012

“A number of states have expressed interest in placing tolls on their free Interstate highways, which are state-owned assets. While such proposals arouse considerable controversy, governments clearly need to find some source of funding in the coming years to rebuild the aging road network that has fostered U.S. economic productivity for the past 50 years. The federal government is steadily backing away from this responsibility, but it still restricts states’ options for financing the modernization of their own roads. If Washington is not going to be part of the transportation solution, it should simply get out of the way and let states find their own ways forward.”--William G. Reinhardt and Ronald D. Utt, PhD, “Can Public-Private Partnerships Fill the Transportation Funding Gap?” Heritage Backgrounder No. 2639, January 12, 2012 (www.heritage.org/research/reports/2012/01/can-public-private-partnerships-fill-the-transportation-funding-gap)

“[I]f informed decisions are the goal, then conventional ex ante cost-benefit analysis must be supplemented with empirical ex post risk analysis focused on documented uncertainties in the estimates of costs and benefits that enter into cost-benefit analysis. For a given major infrastructure project, this would constitute a kind of empirical due diligence of its cost-benefit analysis, something that is rarely carried out today. . . . [A] key recommendation for decision-makers, investors, and voters who care about what Williams (1998) calls ‘honest numbers’ is that they should not trust the budgets, patronage forecasts, and cost-benefit analysis produced by promoters of major infrastructure projects. Independent studies should be carried out, and such studies should be strong on empirically based risk assessment.”--Bent Flyvbjerg, “Survival of the Unfittest: Why the Worst Infrastructure Gets Built—and What We Can Do About It,” Oxford Review of Economic Policy, Vol. 25, No. 3, 2009.

“Antiquated municipal water and sewer systems are indeed a ticking time bomb . . . . But maintaining water and sewer infrastructure in a state of good repair is a fairly straightforward challenge. Water supply and sewers are a public utility and, as such, they can cover their maintenance and replacement costs through user fees. So can many other public services such as electricity, natural gas, broadband, and telecommunications. The ability to charge for services (and to raise rates as necessary) assures public utilities a steady and reliable stream of revenue with which to maintain, preserve, and grow their assets.”--Ken Orski, “Why Pleas to Increase Infrastructure Funding Fall on Deaf Ears,” Innovation NewsBriefs, Vol. 23, No. 5, February 4, 2012

Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy